Microsoft Wins in Supreme Court; AT&T Ruling Overturned

In a stunning 7-1 decision with extremely broad implications in the field of patents and patentability, the US Supreme Court has overturned a Federal Circuit ruling that was in favor of AT&T, and has apparently affirmed Microsoft's arguments that software coupled with the device on which the software is installed cannot be considered patentable.

Depending on the language of the ruling - which has not yet been released - some of the bedrock principles upon which countless US software patents have already been issued, may now come under question. And in one of the great ironies of our time and industry, Microsoft may have just won the single most important victory to date on behalf of open source advocates.

“Abstract software code is an idea without physical embodiment,” reads the syllabus of this morning’s historic decision in AT&T v. Microsoft from the US Supreme Court, “and as such, it does not match [the] categorization “components” amenable to “combination.”

Windows abstracted from a tangible copy no doubt is information -– a detailed set of instructions –- and thus might be compared to a blueprint (or anything else containing design information). A blueprint may contain precise instructions for the construction and combination of the components of a patented device, but it is not itself a combinable component.”

The implications of that paragraph on the software industry will be historic, and the open source community may have reason to celebrate what could be a world-changing victory. The patent under dispute in this case was a long-held AT&T patent relating to speech synthesis software. Specifically, the patent explained a device on which that software was installed.

Although Microsoft had obtained a license to AT&T’s speech software and was using it in Windows XP and Vista, AT&T claimed that license did not extend to Microsoft the right to export Windows – and thus export the software with it – to other manufacturers who would then install the software on their own computers, and then sell those computers and pocket the proceeds.

An early provision of the US Patent Act, called Section 271(f), created an exception to an exception governing where US patent law does not apply. While it cannot cover exports to other countries – that’s for the other countries to decide – it does cover situations where technologies learned over here could be reassembled “over there.”

The whole point of the creation of 271(f) was to disallow companies, especially foreign ones, from learning how to produce machines American-style over here, then build assembly lines back in their home countries to produce knock-offs.

AT&T’s argument boiled down to the notion that patented software could essentially be decomposed by a supplier (Microsoft) and recomposed by a foreign manufacturer abroad (for instance, Acer). In such a situation, AT&T argued, Microsoft would be liable for the infringement. Microsoft argued that in exporting an installation disc to foreign manufacturers, it was shipping an abstract form of the software, not the patented mechanism itself.

So the dispute between technology giants AT&T and Microsoft began over a simple matter of licensing. But in defending itself, Microsoft elevated the case to a matter of basic legal principle. In so doing, the company put in jeopardy what many believe to have been one of Microsoft’s own bedrock principles: proprietary rights to intellectual property governing software.

Now, by Microsoft’s victory, the whole notion that software is patentable will be open to challenge, and the language in this morning’s decision will be cited in those challenges.

The court’s opinion in detail becomes even more explicit: “This case poses two questions: First, when, or in what form, does software qualify as a ‘component’ under [Section] 271(f)? Second, were ‘components’ of the foreign-made computers involved in this case ‘supplie[d]’ by Microsoft ‘from the United States’?”

No one, the High Court concedes, would argue that software is never a “component” worthy of protection under law, so it’s only a matter of when and where. Here is where the language becomes crystal clear:

“Software, the ‘set of instructions, known as code, that directs a computer to perform specified functions or operations...can be conceptualized in (at least) two ways. One can speak of software in the abstract: the instructions themselves detached from any medium. (An analogy: The notes of Beethoven’s Ninth Symphony.) One can alternatively envision a tangible ‘copy’ of software, the instructions encoded on a medium such as a CD-ROM. (Sheet music for Beethoven’s Ninth.)”

Given that there must be abstractions, where can we draw the dividing line between the abstract and the real material worthy of protection? The Court ruled that line does not extend even an inch into the abstract realm – effectively stating that abstract code (essentially source code by another name) cannot be afforded such protection.

Specifically, a real component could be combined with a computer directly to become something worth protecting. But if you can’t plug it in and turn it on –- for instance, if it needs to be interpreted or compiled first –- then it’s not real yet.

“Until it is expressed as a computer-readable .copy,. e.g., on a CD-ROM, Windows software - indeed any software detached from an activating medium - remains uncombinable. It cannot be inserted into a CD-ROM drive or downloaded from the Internet; it cannot be installed or executed on a computer. Abstract software code is an idea without physical embodiment, and as such, it does not match §271(f)’s categorization: ‘components’ amenable to ‘combination’.”

While Microsoft walks away from the Supreme Court a huge victor this morning, and that "Ode to Joy" its counsel are hearing may be the voices of its former opponents in the market, the impact of this decision may be so devastating that it could ironically impact Microsoft itself in another regard: its interoperability code, which the European Commission argues should be licensed to competitors for nothing or close to nothing.

As the Supreme Court has found, software remains patentable, but any code that must be reinterpreted to become functional is not – and scholars will interpret that to include source code as well.